Mortgage After Chapter 7 Bankruptcy On Home Loans

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Mortgage After Chapter 7 Bankruptcy On Home Loans

This BLOG On Mortgage After Chapter 7 Bankruptcy On Home Loans Was UPDATED On October 7th, 2018

Looking for a Mortgage After Chapter 7 Bankruptcy?

  • For many individuals, filing Chapter 7 Bankruptcy is closing one chapter in life and opening new doors of opportunity
  • There is a stigma attached to filing and going through a Chapter 7 Bankruptcy
  • For many, it is a lack of understanding of what drove someone to that point
  • Individuals may become reluctant to apply for any type of credit after a Chapter 7 Bankruptcy Discharge
  • This is because they fear rejection and become embarrassed

Steps In Qualifying For Mortgage After Chapter 7 Bankruptcy

Many potential home buyers think mortgage after Chapter 7 Bankruptcy is not possible so they do not even try. Every loan program has its own waiting period requirements to qualify for mortgage after Chapter 7 Bankruptcy discharged date.

There are two parts in when qualifying for mortgage after Chapter 7 Bankruptcy.

  • If you just file Chapter 7 Bankruptcy, there is a two year waiting period to qualify for a FHA Loan after the discharged date
  • There is a four year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date
  • Waiting period is 3 years after discharged date on USDA Home Loans
  • If you had a mortgage as part of a Chapter 7 Bankruptcy, there is a three year waiting period from the recorded date of housing event on FHA and USDA Loans
  • There is a two year waiting period after Chapter 7 Bankruptcy discharged date to qualify for VA Home Loans
  • Housing event is the following:
    • foreclosure
    • deed in lieu of foreclosure
    • short sale

Mortgage Included In Bankruptcy Guidelines

There are mandatory waiting period after the Chapter 7 Bankruptcy discharged date to qualify for a FHA, VA, USDA, and Conventional Loans:

  • If you had a mortgage included Chapter 7 Bankruptcy, there is a four year waiting period to qualify for a Conventional Loan and VA Loans after the discharged date of bankruptcy
  • The deed of the property that was included in the Chapter 7 Bankruptcy can be recorded after the discharged date of the Chapter 7 Bankruptcy
  • This rule is different than those of FHA Loans, and USDA Loans
  • If the mortgage included in Chapter 7 Bankruptcy was a VA Loan, it may affect VA Entitlement on new VA Mortgage

Can A Person Qualify For FHA Mortgage After Chapter 7 Bankruptcy?

Can a person qualify for a FHA Mortgage After Chapter 7 Bankruptcy?

  • The good news to this question in YES!
  • HUD, The United States Department Of Housing And Urban Development which is the parent of the Federal Housing Administration or FHA
  • HUD allows borrowers to obtain a qualified mortgage that is insured by HUD, called FHA Loans, after satisfying a two year mandatory waiting period after a Chapter 7 Bankruptcy Discharge Date

Preparing For FHA Mortgage After Chapter 7 Bankruptcy

What should I do during the two year waiting period to prepare yourself for mortgage after Chapter 7 Bankruptcy?

  • A person who has had a prior Chapter 7 Bankruptcy Discharged should make sure that they responsibly rebuild credit
  • Re-establishing credit should be done immediately after the discharge of the Chapter 7 Bankruptcy
  • This can be obtained by opening a secured credit card or obtaining an unsecured credit card
  • Obtaining an unsecured credit card right after a Chapter 7 Bankruptcy Discharge will most likely not happen
  • Most unsecured credit card credit card companies will require a credit scores of at least a 700 FICO
  • However, borrowers can start re-establishing credit by getting secured credit cards
  • Preferably three to five with at least a $500 credit limit or more
  • Secured credit cards are the best, easiest and fastest tools in re-establishing credit and improve credit scores after a Chapter 7 Bankruptcy
  • During this period, consumers should show responsible use of credit
  • This is easily accomplished by making sure to make regular payments and never being 30 days late
  • To obtain the highest FICO score advantages, it is important that credit card usage stays under 10% of the credit limit

Mortgage After Chapter 7 Bankruptcy With Late Payments After Discharged Date

Majority of lenders will not approve anyone for a FHA Loan if the borrower has had any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.

  • This holds true no matter how high their credit scores are
  • Consumers need to religiously monitor their payment history after a Chapter 7 Bankruptcy Discharge Date
  • Make sure they do not have any late payments period
  • There are lenders that will accept one or two late payments after a Chapter 7 Bankruptcy discharge, foreclosure, deed in lieu of foreclosure, or short sale
  • But the majority of them will require a 7 year waiting period after any late payments after a bankruptcy and/or housing event

Late Payments After Bankruptcy And Housing Event Is Considered As Second Offender By Most Lenders

It is extremely important that there are not any late payments.

  • It is also important not to have new collections accounts show up after bankruptcy and/or housing event
  • Filing for bankruptcy can be life changing and difficult
  • However, individuals who demonstrate responsible credit use and an established payment history during the two year waiting period, should not have any issues obtaining a mortgage for home purchase

About The Author

Gustan Cho is the Editor In Chief of Gustan Cho Associates Real Estate And Information Center as well as a licensed mortgage loan originator.

  • Gustan Cho is an expert in helping home buyers with less than perfect credit scores and higher debt to income ratios
  • The Gustan Cho Team specializes in originating, processing, underwriting, and funding FHA, VA, USDA, and Conventional Loans with no overlays Gustan Cho Associates has NO FHA Investor Overlays
  • Over 70% of Gustan Cho Associates borrowers are folks who were told that they do not qualify with their lender they went to due to overlays
  • For example, HUD requires a minimum credit score of 580 FICO to qualify for a 3.5% down payment FHA Loan
  • However, if a home buyer visits his or her local bank and applies for a FHA Loan with a 580 FICO credit score, the banker will tell them that they do not qualify for a FHA Loan with them
  • This is because most banks have FHA Investor Overlays on credit scores where the minimum credit score they require is 640 FICO
  • The Gustan Cho Team of mortgage loan originators will be able to help borrowers get FHA Loans approved
  • We are known nationally due to its no lender overlays

Please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com if you need to consult with a loan officer with no lender overlays on FHA, VA, USDA, and Conventional Loans.

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